Some semiconductor stocks lost ground Tuesday on fears that the industry's turnaround will be hurt by a weakened euro and uncertain back-to-school demand.
The Philadelphia Semiconductor Index fell 1.26 points, or 0.4 percent, to finish at 334.58 points.
Shares of Intel Corp., the world's biggest semiconductor company, dipped 13 cents to close at $20.18, while Broadcom Corp., which makes chips for set-top boxes and modems and mobile phones, slid 38 cents to end at $32.20, after both stocks were downgraded by Susquehanna Financial Group analysts.
In each case, the analysts cited signs of weakness heading into the July-September quarter, in personal computers for both companies and consumer electronics and cell phones for Broadcom in particular. Intel is the world's No. 1 maker of microprocessors, the "brains" of PCs.
Susquehanna analysts Chris Caso and Liz Pate wrote in a note to clients that the weakening euro, and anticipated price hikes on personal computers, is threatening to sap demand in Europe. They said their checks with manufacturers in Asia indicate that the PC industry's growth in the third quarter could be "well below seasonal" averages and possibly "the worst 3Q for notebooks since 2001."
Both stocks were downgraded to "Neutral."
The euro has been roiled by the fallout from a debt crisis which has exposed weaknesses in the 16-nation monetary union and led to massive market pressure on governments to show they can reduce spending, even as the economic recovery remains fragile. It has lost nearly 22 percent of its value against the dollar in the last six months.
Also Tuesday, analysts from UBS Securities said they are cautious about U.S. semiconductor stocks since they expect the industry to "regress to normalized trends, which combined with macro risks in Europe, inventory normalization and seasonal weakness could lead to bookings moderation and a possible inventory correction, creating risk to the 3Q sales outlook."
Barclays Capital analyst Tim Luke also warned in a Tuesday report that the chip industry's "unprecedented" growth rates in 2009 should slow going forward. However, he said he's encouraged by the industry's "generally modest" inventory levels and "intriguingly depressed" valuations of semiconductor companies. The lower stock prices appear to be taking into account expectations for a slower second quarter and uncertainties about European demand.
"This suggests that further downside could be relatively modest unless a weakened macro environment prompts a substantial resetting of expectations," Luke wrote.
Fellow chip maker Nvidia Corp. saw shares fell 32 cents, or 2.8 percent, to close at $11.18.
Not all chip stocks declined Tuesday, however. Shares of Texas Instruments Inc. closed up 21 cents at $23.88 ahead of the company's mid-quarter update. After the market close, Texas Instruments lifted the low end of its second-quarter profit forecast.
The company now expects to report earnings per share of 60 cents to 64 cents on revenue of $3.45 billion to $3.59 billion, compared with a prior range of 56 cents to 64 cents per share on revenue of $3.31 billion to $3.59 billion.
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